Turkey's natural gas enters revival era

As natural gas prices bounce back after a heavy slump during past years, experts have explained short and long-term mechanisms behind future price increases.

"We have to differentiate between long and short-term prices, but it's obvious that both will rise in the future as a result of the current situation and due to gas contracts being priced in accordance with oil," said Mert Bilgin, an energy expert and associate professor at Bahçeşehir University.

"In the short term, the Libyan crisis is affecting spot prices [immediate selling price], while long-term gas contracts signed in upcoming months or years will be based on previous oil prices, which are currently over $100 per barrel," he told the Hürriyet Daily News & Economic Review.

Natural gas spot prices increased 13 percent from March 10 to March 23 this year, while Gazprom sales rose by around 10 percent compared to January last year.

While previous years were marked by “a serious price decrease in natural gas,” experts now estimate that hikes will not manifest themselves as short-term rises, but become influential in the long-term pricing of natural gas.

"Pipeline problems are being reduced, the gas sector is seeing technological advances and transportation is improving with LNG," said Manouchehr Takin, a senior energy analyst at the Global Center for Energy Studies.

"The days of one producer are over and long-term gas produce and pricing will increase," he told the Daily News.

In the short-term, experts predict natural gas "spot prices" to increase as a result of Middle Eastern turmoil and increased demand from Japan.

Spot prices are used as an immediate selling price, prone to fluctuations, while long-term gas contracts rely on figures calculated on the basis of previous annual quarters of oil price averages.

"The uprisings in North Africa are creating instability, seeing that Europe is very dependent on Libya, while uncertainty about Algeria is spreading market fears," said Takin.

"Another factor is Japan and nuclear energy being reviewed for safety in many countries," he told the Daily News. "This has meant a major boost in Liquefied Natural Gas, or LNG, and the gas sector more broadly as nuclear energy is losing credibility," he said.

Gazprom sales figures have increased over 10 percent since last year, due to its role as the replacement of Libyan exports and recently halted nuclear production in Japan.

With gas spot markets in the United States increasing to $ 4.21 on the Henry Hub scale, or HH, experts have noted "an increasingly positive attitude surrounding the revival of gas."

In the long-term, prices are also expected to continue rising as a result of natural gas being priced in accordance with oil.

"When negotiating long term contracts, prices are based on the averages of oil prices in months preceding the actual agreement," said Bilgin.

"This means that contracts for gas in the future will be related to the current oil prices, which are generally above $100," he told the Daily News. "So, prices are bound to increase."

During the 25th annual natural gas conference in Amsterdam, entitled "Gas Tech," the message was positive with regards to future prospects, according to Takin who attended the conference.

"It may have been biased considering it's a gas conference, but the atmosphere was definitely one of optimism and hope for the renewed interest in natural gas."


/Hurriyet Daily News/